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Successful leadership depends on the confidence to rally support, win allies, and deter competitors. However, overconfident leaders have led their companies into disaster. This article identifies the circumstances in which leaders are most prone to overconfidence and its concomitant risks. On the flip side, it explores those circumstances under which confidence is most conducive to success. Using insights from recent research, the article provides recommendations on how managers can avoid the pitfalls of overconfidence while benefiting from the advantages of confidence. (Keywords: Decision making, Entrepreneurship, Investments, Leadership, Organizational behavior, Securities trading, Startups)
eading up to its 2008 economic collapse, Icelands small economy, once dominated by rugged fisherman, came to be run by confident young investment bankers armed with degrees from American business schools. Taking lessons from the American banking industry, they borrowed money to purchase foreign companies they had no idea how to manage. Soon, Icelandic bankers were trading assets with each other and inflating their value in the process, creating the illusion that Icelandic banks were profiting. However, as Michael Lewis explains in his best-selling book Boomerang, many believed that their apparent success revealed something profound:
Icelandersor at any rate Icelandic menhad their own explanations for why, when they leapt into global finance, they broke world records: the natural superiority of Icelanders. Because they were small and isolated, it had taken 1,100 years for themand the worldto understand and exploit their natural gifts, but now that the world was flat and money flowed freely, unfair disadvantages had vanished.1
The authors would like to thank Linda Dong and Joe Mazzella for their help in finding examples of overconfidence. The first author would also like to thank California Management Review for financial support during his second year of graduate school.
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Avoiding the Pitfalls of Overconfidence while Benefiting from the Advantages of Confidence
Icelandic bankers believed they were successful due to their natural superiority. Their belief proved self-fulfilling for a time. However, when foreigners who had invested in Icelandic banks started Don A. Moore is an Associate Professor in to doubt the Icelandic miracle and tried to cash out, the Management of Organizations group the value of these banks fell precipitously. Within a as well as a Barbara and Gerson Bakar short time, the major Icelandic banks failed and Faculty Fellow at the Haas School of Business, UC Berkeley. took the small countrys economy down with them. The overconfidence of bankers had blinded them to their own limitations and the size of the risks they had taken.
Alex B. Van Zant is a Ph.D. student in the Management of Organizations group at the Haas School of Business, UC Berkeley.
It is easy to think of other business lessons that parallel the Icelandic parable. Whether America Onlines 2000 acquisition of Time Warner, the housing boom of the 2000s, or the inflation of the dot-com bubble in the late 1990s, overconfidence has accompanied many of the most dramatic business follies. Analysts, journalists, and academics correctly highlight the role of overconfidence in helping set the stage for many calamities. Some have even argued that no problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence.2 Indeed, the effects of overconfidence are routinely evident in many different forms. Overconfident plaintiffs and defendants overestimate the chances of a favorable court judgment and resist settling early.3 Their overconfident attorneys perpetuate the conflict by encouraging these beliefs. Likewise, overconfident investors trade assets too much, sure that they have the distinctive insight that allows them to predict the next big investment opportunity.4 Indeed, scholars have gone so far as to claim that overconfidence is perhaps the most robust finding in the psychology of judgment.5 In this article, we discuss the causes and consequences of overconfidence as identified by research, much of which was conducted in experimental laboratories. However, in an effort to illustrate the impact of overconfidence beyond the laboratory, we have identified many examples from the business world where overconfidence was important. A problem with such examples is that, as with the Icelandic bankers story, we identify overconfidence after we have observed results that reveal an initial judgment was overconfident. Selecting instances in which actors appear overconfident runs the risk of inferring overconfidence when bad luck is more to blame. The most persuasive way to address this concern is by studying overconfidence in the research laboratory where we can make stronger conclusions about causation. We base our arguments here on research and employ examples from outside the lab for the purposes of illustrating phenomena that have been demonstrated in empirical research. By using both, we show that the evidence has practical implications for managers. We begin by highlighting the adverse consequences of overconfidence for investors, managers, and entrepreneurs. However, overconfidence is far from universal, and we identify the situations in which it is most likely to be a problem.6 We then consider the other side of the overconfidence coin and discuss some advantages of displaying confidence. The display of confidence is useful for leaders who wish to gain stature, credibility, and influence. Finally, we will provide recommendations
Avoiding the Pitfalls of Overconfidence while Benefiting from the Advantages of Confidence
for how to best avoid the pitfalls of overconfidence while taking advantage of the benefits to expressing confidence. Whether the goal is to simply improve ones decisions or to enhance the effectiveness of ones organization, these recommendations are simple to implement yet effective. However, we must first be clear about what we mean by overconfidence. Overconfidence has basically been studied in three ways.7 The first is overestimation: thinking that youre better than you actually are. The second is overplacement: thinking that youre better than others when youre not. The third is overprecision: being too sure you know the truth. The first two are obviously related, and on any given task they are often correlatedbut they are not the same. To understand the difference, it is worth considering how different forms of overconfidence relate to individuals willingness to engage in competition.
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Avoiding the Pitfalls of Overconfidence while Benefiting from the Advantages of Confidence
TABLE 1. Expected Participant Earnings by Raffle Prize Condition and Market Entry
Easy Quiz Raffle Entry
$45 Easy, $90 Difficult $90 Easy, $45 Difficult Mean expected earnings $1.76 $3.21 $2.52
Investment Decisions
Overconfidence leads people to make mistakes in allocating their investments. Although index funds allow people to diversify their risk, avoid transaction fees, and save their own valuable time, they often decide to manage their portfolios more actively by regularly trading assets. Presumably, those who are ready to invest their own time and money into maintaining an actively managed portfolio must have faith in their ability to outsmart the market. If they were accurate in their perception that they could beat the market, then one would expect these investors who actively manage their portfolios to outperform the market. However, Terrance Odean concluded that many investors trade too much.9 They spend their time and energy searching for investments that, on average, underperform the market. In a related study, Barber and Odean reported that from 1991 to 1996, the average household turned over 75% percent of its portfolio annually and earned 1.5% lower annual returns than the market index. The top 20% of households in terms of turnover earned annual returns that were 7.1% lower than households in the bottom 20% in terms of turnover. In the words of the authors, trading is hazardous to your wealth.10 Or in other words, overplacing your ability to forecast stocks is hazardous to your wealth.
Corporate Mergers
Overconfident individuals make decisions that not only are detrimental to their personal finances, but to the finances of their organizations. When the key decision makers in a firm overplace their abilities relative to those of the management teams of other firms, they become more likely to believe they could better manage
Avoiding the Pitfalls of Overconfidence while Benefiting from the Advantages of Confidence
the other firms. Indeed, Malmendier and Tate found that overconfident CEOs were more likely to engage in mergers.11 After ruling out alternative explanations for their findings, the authors concluded that CEOs who are overconfident in their ability to beat out the competition and earn future returns for their companies are more likely to engage in mergers than well-calibrated CEOs. As the result of engaging in too many mergers, these overconfident CEOs lose value for the shareholders of their firms, including themselves. Every company ought to be worried about the potential for overconfidence among managers at the top. After all, the way people get to the top is by having a career in which they both perform well and are favored by fortune. Top managers often express great faith in the quality of their own intuitive judgment, and indeed they have a careers worth of success to support that faith. However, while their skill may endure, the good fortune that helped put them at the top will not.
Startup Businesses
Entrepreneurs and the self-employed are particularly likely to display overconfidence.15 However, it does not follow that would-be entrepreneurs should want to be overconfident. If most new firms fail, the choice to found a new firm might be a negative-expected-value bet that risks the wealth of founders and investors alike.
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Unlike an established firm like Google that has an enormous cushion of banked profits, when the founder of a startup company falls prey to the adverse effects of overconfidence, the consequences can be disastrous. This appears to have been the case of the online grocery delivery service Webvan. Despite being valued at $1.2 billion in 1999 and being a pioneer in an industry that was achieving modest success, Webvans leadership attempted to enter too many different geographic markets. Ultimately, this excessive ambition led to the companys demise in 2001.16 In a retrospective account of the overconfidence of Webvans leadership, CEO Robert Swan stated we made the assumption that capital was endless, and demand was endless.17 Essentially, Webvans key decision makers overplaced their abilities to outcompete other startups for additional venture capital funding and overplaced their ability to steal market share from well-established giants in the grocery industry. This led to a potentially successful business model failing because the company tried to do too much in too brief a time. Whether ones goal is to establish a company like Webvan or to start a local family-owned convenience store, the decision to enter a new market typically requires a financial investment. A large portion of these investments are lost, as people frequently underestimate the competition when they invest in startup businesses. Consequently, investors often put their hard-earned money on the line for ventures that have a low probability of succeeding. In fact, entrepreneurial overconfidence can explain differences in market entry rates and startup failure rates across countries. A survey of entrepreneurs across several countries by Koellinger, Minniti, and Schade found that in the countries where people are the most confident about their business acumen, market entry rates of startups are the highest and survival rates of startups are the lowest.18 While we have all heard of success stories in which the entrepreneurial spirit prevails against all odds, we hear less about people who fail. The reality is that most startups fail.
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as the most prepared to start a business did indeed have the highest annual rates of entry. Given that industries with high entry rates also tend to have high exit and failure rates,20 it is the very same industries that people perceive as easy to enter that have the highest failure rates. Table 2 shows the results in the Cain et al. study for the ten industries considered to be the easiest and the ten industries considered to be the most difficult to start a new business. Note that grocery and food stores are among those with the greatest perceived ease of succeeding and the highest entry rates. This is one factor that likely drove Webvan, the failed online grocer, to overestimate its ability to steal market share from established stores. Given the tendency to overplace on easy tasks, it should come as no surprise that people are also prone to overplacement when a task gets easier. Whether a new legal regulation, a higher tax, or some external shock, organizations within an industry often deal with changing conditions that make things more easy or difficult than before a given change occurred. In cases where changing conditions make things easier for organizations, their leaders are prone to overplacement. Relatedly, when students learn that the final exam will be open-book, their collective expectations of getting an A goes up, even if the class will be graded on a forced curve. When things become easier, we tend to overplace our relative performance. People often behave
TABLE 2. Perceived Ease and Annual Entry Rates of the Twenty Most
Extreme Industries Industry Perceived Ease Annual Entry Rate (Z-Score) (Per 10,000 Existing Firms)
2.00 1.89 1.83 1.75 1.74 1.72 1.50 1.48 1.40 1.36 1.67 1.73 1.35 1.36 1.46 1.56 1.61 1.65 1.72 1.84 1.86 1.96 1.64 1.63 396 889 334 446 911 764 579 219 425 715 568 513 351 113 105 331 233 520 274 426 130 228 271 252
10 Easiest Industries Food Stores Miscellaneous Durable Goods General Merchandise Stores Eating and Drinking Places Groceries and Related Products Beer, Wine, and Distilled Beverages Hobby, Toy, and Game Shops Liquor Stores Professional and Commercial Equipment Gift, Novelty, and Souvenir Shops Easy Mean Easy Median 10 Hardest Industries Fabricated Metal Products Depository Institutions Agricultural Crop Production Agricultural Services Fishing, Hunting, and Trapping Petroleum and Coal Products Forestry Metal Mining Agricultural ProductionLivestock Nonmetallic Mineral Mining, Except Fuel Hard Mean Hard Median
Note: Results as reported in the Field Data of Cain et al.
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as if shared advantages will benefit them to a greater extent than it will benefit their competitors. In a series of studies, Windschitl, Kruger, and Simms demonstrated that when a game gets easier for everyone, people become more confident that they will win.21 One particular study illustrated this tendency in the context of a poker game. After providing participants with a poker tutorial, they were split into tables of 3-5 people to play a series of hands. For some hands, ten specific cards were identified as wild cards. Because the idea behind a wild card is that it can be used strategically by the cardholder to represent the card that gives him or her the best possible hand, the presence of wild cards represents an advantage that is shared by all members of the table. In hands with wild cards, bets on the table were much higher than they were in hands without wild cards. This finding is evidence of a belief where wild card holders acted as if they believed themselves to be particularly advantaged even though other players are very likely to also possess a wild card. Notably, experience with poker did not mitigate this effect. Even the most experienced players increased their bets in hands with active wildcards to a large degree. In the same way that shared advantages encourage overplacement, shared disadvantages encourage underplacement. When regulations tighten for an entire industry, it is nevertheless common for all firms to become more pessimistic about gaining market share. Some business owners complained of the additional costs imposed on them by the health care coverage requirements of the Patient Protection and Affordable Care Act passed by the Obama Administration,22 without acknowledging that their competitors will also face these costs. Because we tend to focus on how such changes will affect us, we typically underplace our performance relative to others when faced with shared challenges. In addition, this finding has also been illustrated in the domain of negotiations. Negotiators tend to believe that deadlines will hurt their negotiation outcomes even though their counterpart is also subject to the same deadline.23 This often results in underplacement even though deadlines can be beneficial for negotiators in some situations.
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means of improving the calibration of ones judgment, even when he or she does not receive feedback about his or her own competence or the competence of a competitor. Kruger and Dunning pointed out that across a variety of domains, the very worst performers often overplace to the greatest extent.30 They attribute this observation to the fact that in many tasks, the most incompetent individuals often have the least information about the task. Because the very same information needed to perform well at a task is often the same information needed to evaluate ones competence at the task, the most incompetent individuals often lack the knowledge to adequately assess their own relative skill. Furthermore, the authors demonstrated that when incompetent people are provided with more information about a task, they improve their ability to estimate their relative performance. In a study where people completed a logic task, the authors had a random subset of participants complete a training session that helped them identify some of the skills necessary to succeed. Those who completed a training session became more accurate at estimating their relative performance across all levels of objective performance and those who were in the bottom quartile of performers improved the most in terms of accuracy, as they dramatically adjusted their estimated percentile ranks downward. Thus, learning more about the task improved everybodys ability to estimate their relative performance, especially those who had the least knowledge about the task in the first place. By simply becoming aware of the skills necessary to be successful at the task, incompetent participants became more capable of recognizing their own limitations. Learning more about the tasks we engage in allows us to better recognize our own limitations and the limitations of others. This reduces uncertainty and improves the accuracy of performance expectations. The more information we have about the competition and the domain in which we are competing, the better we are at judging our ability to compete. Unfortunately, we often process the information we do receive in a biased fashion. Managers from the CEO on down must make decisions with an eye to the long term. However, while they wait for time to elapse and the future to provide them with feedback about the quality of their own decisions, a variety of other factors come into play that may affect the very outcomes that they hope to use as feedback in helping them calibrate their judgment. The ambiguity of information about outcomes and its lack of timeliness often explains why people form biased perceptions of their own judgment. Many stand ready to accept credit for successes, but managers routinely blame forces outside of their control when things go badly. In the words of John F. Kennedy: Victory has one hundred fathers, but defeat is an orphan. Even when we do get good information and timely feedback about our own performance, we do not always make the best use of the information at our disposal. For example, Eil and Rao asked participants in a study to either complete an IQ test or to engage in a speed dating task.31 Those who completed the IQ test estimated their ranks on the test relative to others in their experimental session while those who completed the speed dating task estimated their physical attractiveness ranking as rated by members of the opposite sex. In a second ranking game, the experimenter drew a random card for each participant in the session to determine ranks by chance. Participants received information about how they compared to another randomly selected participant in their session, one at a time. Notably, this type of feedback
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is incomplete, as it doesnt directly tell participants how they compare to all other participants. The incomplete information introduces an element of ambiguity in how it should be interpreted in updating ones ranking relative to other participants. Each time participants received new information, they updated their estimates of where they ranked relative to all participants in the experimental session. Interestingly, the authors found that for IQ and attractiveness, people responded quickly to information suggesting they ranked better than they had thought, yet were relatively unresponsive to the revelation that they ranked worse than they had thought. On the other hand, for the card-drawing task that was based on chance, participants were equally accurate in updating to both positive and negative information. This finding indicates that people are capable of objectively updating to new information that doesnt concern their own abilities, but when the information is relevant to their own abilities, they tend to update in a self-serving manner. People upgrade their estimated relative rank in response to information suggesting that they are better than others to a greater extent than they downgrade their estimated relative rank in response to information suggesting that they are worse than others. The evidence suggests that people update to new information in a biased manner when it directly involves their own relative abilities, particularly when they receive information suggesting that they do not compare as favorably to others as they previously thought. This self-serving bias is particularly conducive to overplacing ones abilities, as people are unlikely to adequately downgrade their beliefs about their relative abilities despite receiving information suggesting that they should. Even when people do their due diligence by acquiring as much information as they can about the competition and the tasks in which they are competing, they are often at risk of overplacement.
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drive individuals to exhibit cues that are associated with competence. In a series of studies, Anderson et al. demonstrated that the most overconfident individuals tend to be perceived as the most competent.33 One study in particular experimentally manipulated overconfidence by giving participants randomized feedback about their performance. Some participants received performance feedback that was accurate while others received feedback telling them that they received a high score. This manipulation served as a successful induction of overplacement, as those participants told that they received a high score estimated their percentile rank on the task to be higher than those who received accurate feedback. After receiving feedback, each participant then completed the task again in a dyad with another participant. At the conclusion of the dyadic task, participants then rated one another in terms of how competent they perceived each other to be and how much influence they perceived each other to have over the decision-making process in the dyadic task. The results of the study demonstrated that people perceived overconfident partners to be better at the task relative to other participants than people who received accurate feedback. Additionally, overconfident people were rated as more influential over the decisionmaking process in the dyadic task than accurate people. In another set of studies building on this research, Kennedy et al. found that overconfident individuals were not only rated as more influential than others, but their partners changed their responses on a task to a greater extent while interacting with these overconfident individuals.34 The data suggest that this was partly because people tend to be influenced by others who they perceive to be competent. Whether you are a young entrepreneur trying to secure venture capital funding, a sales representative who seeks to convince a client to hire his or her firm, or an experienced CEO who wants to instill confidence in employees, the appearance of competence and the ability to influence others are crucial for success in competitive markets. The display of confidence is one route through which individuals can reap these benefits. However, it is unclear whether confidence is something that can be easily faked. The results of one study in the research by Anderson et al. described above suggests that being perceived as competent has much more to do with ones nonverbal behavior than explicit claims. As illustrated by Table 3, overconfident people tend to speak more often, to provide information relevant to a problem, to offer the first answer in dyadic tasks, and to speak in confident tone with a relaxed demeanor. It should be immediately obvious that these behaviors are likely to be diagnostic cues of competence. Those who actually are capable should be those who speak first, speak most, and speak assertively. In many ways, that is the ideal: those who take control are also those whose abilities justify that confidence. If you actually are the best, then you cannot overplace yourself. However, others may have to choose how much confidence to display given their limited abilities and their desire to assert control, attain status, or frighten off potential rivals.
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Overconfidence
.25* .29* .19* .00 .22* .10 .27* .17 .07 .14
Perceived Competence
.59* .54* .51* .37* .34* .24* .21* .21* .18 .09
Note: Results as reported in Study 4 of 33. Cameron Anderson, Sebastien Brion, Don A. Moore, and Jessica A. Kennedy, A Status-Enhancement Account of Overconfidence, Journal of Personality and Social Psychology, 103/4 (October 2012): 718-735. * Statistically significant at the .05 level.
top notch, then they are going to be reluctant to compete against it. Charness, Rustichini, and Van de Ven tested whether people who signal to others that they are highly competent are successful at deterring the competition.35 Some participants in their study were given a strategic choice of whether to enter a competition with another participant where the person with the higher score on an intelligence test would win $10 and the loser would earn nothing. Those facing the entry decision were given the choice of whether to accept a guaranteed payment for not entering the competition or to enter the competition and risk earning nothing. Furthermore, among those choosing whether to enter the competition, some were provided with the other participants estimates about his or her percentile rank relative to others on the intelligence test. The results indicate that the more confident the opponent, the less likely participants were to enter the competition. Specifically, it appears that the primary driver of decisions to enter the competition was participants estimates of their percentile rank relative to their opponents estimates of their own percentile rank. In one condition where participants faced a decision of whether to enter the competition or to receive a $5 payment, those who had more confidence in their relative abilities than their opponent entered the competition 92% of the time while those who had less confidence in their relative abilities than their opponent only entered the competition 17% of the time. Even though participants were generally guilty of overplacement in this study, it appears that people who overplaced to a greater extent than their opponent were successful at deterring the competition. In reality, people and organizations may not necessarily indicate their degree of confidence by publicizing explicit estimates about their relative abilities. Nevertheless, there are other, more subtle ways to signal confidence. People may strategically draw comparisons between themselves and high-status others in job interviews and pitch meetings with clients. Organizations may indicate their perceptions of how they rank relative to other companies through the language they use in marketing materials, press releases, and quarterly earnings statements. All
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of these strategies are subtle ways for people and organziations to generate the perception that they are a force to be reckoned with. Strategies for deterring the competition could be even more subtle, such as investing larger amounts of resources than are necessary to launch new products. For example, Apple completed construction on a new one-million square foot data center that required an investment of a billion dollars. Apple has publicly stated that the new center will be used to coordinate the updating of multimedia content on the devices of all Apple users, but some analysts have been pointing out that the new data center seems to be excessively large for the amount of data that it actually needs to store. This excess of storage space, in combination with the fact that people have noticed very little activity at the center, has led some to speculate that the center is primarily in existence to intimidate the competition.36 We may never find out why Apple built such a large data center, but its large investment could simply be an indication that its leadership is confident in the companys ability to continue growing and developing innovative new products. This public display of confidence could potentially deter competitors who hope to one day steal market share away from Apple. In this sense, what initially appears to be overconfidence may eventually become a self-fulfilling prophecy.
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work in a wide variety of situations. The more ambiguous and the more costly the information needed to assess our accuracy, the more likely confidence is to be a successful means of appearing competent and deterring the competition.
Practical Recommendations
What can the research tell us about the best strategies for avoiding the dangers posed by overconfidence while enjoying the potential benefits of confidence? The research presented above suggests several courses of action that may be effective in avoiding the pitfalls of overconfidence while benefiting from the advantages of confidence.
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on our own performance. Thus, overestimating the amount of control we have over our own outcomes often leads us to enter competitive markets where success is dictated largely by random chance. By coming to more realistic assessments of how much control you really have over your own outcomes, you can avoid entering oversaturated competitive markets.
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that are backed up by substance. When your claims are informed by data and consultation with outsiders, you not only will appear persuasive, but you will make more accurate predictions and be less likely to suffer the consequences of poor calibration. Research has demonstrated that the mere experience of power makes people excessively certain in the accuracy of their judgment and reduces their likelihood of listening to others advice.43 By instituting systems of checks and balances where ones predictions must be approved by others before the predictions are made public, people can reduce the likelihood of becoming exposed as an overconfident advisor who lacks credibility. Typically such checks are only instituted for low-level employees, but the evidence suggests that they actually may be the most effective with high-level executives who are particularly prone to experiencing the confidence-enhancing effects of power.
Conclusion
Overconfidence in ones private beliefs can produce risky actions that lead to economically disastrous outcomes. However, the display of confidence can also be helpful for gaining status, influence, and support. Recent research has uncovered some of the situations in which we are particularly prone to overconfidence. Fortunately, this research also suggests some practices that managers may adopt in an effort to improve their decisions. By strategically conveying confidence to others, making an effort to collect performance data, and making a conscious effort to calibrate their beliefs, managers can leverage the benefits of confidence without subjecting their organizations to the pitfalls of overconfidence. Notes
1. Michael Lewis, Boomerang (New York, NY: W.W. Norton, 2011), p. 22. 2. S. Plous, The Psychology of Judgment and Decision Making (New York, NY: McGraw-Hill, 1993), p. 217. 3. Linda Babcock, George Loewenstein, Samuel Issacharoff, and Colin Camerer, Biased Judgments of Fairness in Bargaining, The American Economic Review, 85/5 (December 1995): 1337-1343. 4. T. Odean, Do Investors Trade Too Much? American Economic Review, 89/5 (December 1999): 1279-1298. 5. W.F. DeBondt and R.H. Thaler, Financial Decision-Making in Markets and Firms: A Behavioral Perspective, in R.A. Jarrow, V. Maksimovic, and W.T. Ziemba, eds., Finance: Handbooks in Operations Research and Management Science (Amsterdam: Elsevier, 1995), p. 389. 6. Erik Hoelzl and Aldo Rustichini, Overconfident: Do You Put Your Money on It? The Economic Journal, 115/503 (April 2005): 305-318. 7. Don A. Moore and P.J. Healy, The Trouble with Overconfidence, Psychological Review, 115/2 (2008): 502-517. 8. Daylian M. Cain, Don A. Moore, and Uriel Haran, Making Sense of Overconfidence in Market Entry, Strategic Management Journal (forthcoming 2012). 9. Odean, op. cit. 10. Brad M. Barber and Terrance Odean, Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors, The Journal of Finance, 55/2 (April 2000): 773-806. 11. Ulrike Malmendier and Geoffrey Tate, Who Makes Acquisitions? CEO Overconfidence and the Markets Reaction, Journal of Financial Economics, 89/1 (July 2008): 20-43. 12. Mark Simon and Susan M. Houghton, The Relationship between Overconfidence and the Introduction of Risky Products: Evidence from a Field Study, The Academy of Management Journal, 46/2 (April 2003): 139-149.
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13. Rita Gunther McGrath, Failing by Design, Harvard Business Review, 89/4 (April 2011): 76-83. 14. Stephen Shankland, Top Google Execs: $1 Salary, No Bonus, No Options, CNET News, March 25, 2009, <http://news.cnet.com/8301-1023_3-10204209-93.html>. 15. Manju Puri and David T. Robinson, Optimism and Economic Choice, Journal of Financial Economics, 86/1 (October 2007): 71-99. 16. David Goldman, 10 Big Dot.Com Flops, 2010, <http://money.cnn.com/galleries/2010/technology/ 1003/gallery.dot_com_busts/index.html>. 17. Linda Himelstein and Gerry Khermouch, Commentary: Webvan Left the Basics on the Shelf, BusinessWeek, July 22, 2001, <www.businessweek.com/stories/2001-07-22/commentary-webvanleft-the-basics-on-the-shelf>. 18. Philipp Koellinger, Maria Minniti, and Christian Schade, I Think I Can, I Think I Can: Overconfidence and Entrepreneurial Behavior, Journal of Economic Psychology, 28/4 (2007): 502-527. 19. Don A. Moore and Daylian M. Cain, Overconfidence and Underconfidence: When and Why People Underestimate (and Overestimate) the Competition, Organizational Behavior and Human Decision Processes, 103/2 (July 2007): 197-213. 20. Timothy Dunne, Mark J. Roberts, and Larry Samuelson, Patterns of Firm Entry and Exit in U.S. Manufacturing Industries, The RAND Journal of Economics, 19/4 (Winter 1988): 495-515. 21. Paul D. Windschitl, Justin Kruger, and Ericka Nus Simms, The Influence of Egocentrism and Focalism on Peoples Optimism in Competitions: When What Affects Us Equally Affects Me More, Journal of Personality and Social Psychology, 85/3 (September 2003): 389-408. 22. Rick Newman, How Obama Can Win Back Small Business, US News, June 29, 2012, <www. usnews.com/news/blogs/rick-newman/2012/06/29/how-obama-can-win-back-small-business>. 23. Don A. Moore, The Unexpected Benefits of Final Deadlines in Negotiation, Journal of Experimental Social Psychology, 40/1 (January 2004): 121-27. 24. Colin Camerer and Dan Lovallo, Overconfidence and Excess Entry: An Experimental Approach, The American Economic Review, 89/1 (March 1999): 306-318. 25. Chip Heath and Amos Tversky, Preference and Belief: Ambiguity and Competence in Choice under Uncertainty, Journal of Risk and Uncertainty, 4/1 (January 1991): 5-28. 26. Cain, Moore, and Haran, op. cit. 27. Bill Vlasic, Chosing Its Own Path, Ford Stayed Independent, New York Times, April 9, 2009, <www.nytimes.com/2009/04/09/business/09ford.html?_r=1&ref=alanrmulally>. 28. Windschitl, Kruger, and Simms, op. cit. 29. Gavin J. Kilduff, Hillary Anger Elfenbein, and Barry M. Staw, The Psychology of Rivalry: A Relationally Dependent Analysis of Competition, Academy of Management Journal, 53/5 (October 2010): 943-969. 30. Justin Kruger and David Dunning, Unskilled and Unaware of It: How Difficulties in Recognizing Ones Own Incompetence Lead to Inflated Self-Assessments, Journal of Personality and Social Psychology, 77/6 (December 1999): 1121-1134. 31. David Eil and Justin M. Rao, The Good News-Bad News Effect: Asymmetric Processing of Objective Information About Yourself, American Economic Journal: Microeconomics, 3/2 (2011): 114-138. 32. Cameron Anderson and Gavin J. Kilduff, Why Do Dominant Personalities Attain Influence in Face-to-Face Groups? The Competence-Signaling Effects of Trait Dominance, Journal of Personality and Social Psychology, 96/2 (2009): 491-503. 33. Cameron Anderson, Sebastien Brion, Don A. Moore, and Jessica A. Kennedy, A StatusEnhancement Account of Overconfidence, Journal of Personality and Social Psychology, 103/4 (October 2012): 718-735. 34. Jessica A. Kennedy, Cameron Anderson, and Don A. Moore, Social Reactions to Overconfidence: Do the Costs Outweight the Benefits? unpublished manuscript, 2012. 35. Gary Charness, Aldo Rustichini, and Jeroen van de Ven, Overconfidence, Self-Esteem, and Strategic Deterrence, unpublished manuscript, 2011. 36. Robert X. Cringely, Have You Heard the One About Apples Data Center? <www.cringely. com/2011/06/have-you-heard-the-one-about-apples-data-center/>. 37. Elizabeth R. Tenney, Robert J. MacCoun, Barbara A. Spellman, and Reid Hastie, Calibration Trumps Confidence as a Basis for Witness Credibility, Psychological Science, 18/1 (January 2007): 46-50. 38. Sunita Sah, Don A. Moore, and Robert J. MacCoun, Cheap Talk and Credibility: The Consequences of Confidence and Accuracy on Advisor Credibility and Persuasiveness, unpublished manuscript, 2010. 39. Joseph R. Radzevick and Don A. Moore, Competing to Be Certain (But Wrong): Market Dynamics and Excessive Confidence in Judgment, Management Science, 57/1 (January 2011): 93-106.
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Avoiding the Pitfalls of Overconfidence while Benefiting from the Advantages of Confidence
40. Elizabeth R. Tenney, Barbara A. Spellman, and Robert J. MacCoun, The Benefits of Knowing What You Know (and What You Dont): How Calibration Affects Credibility, Journal of Experimental Social Psychology, 44/5 (2008): 1368-1375. 41. Francesca Gino, Zachariah Sharek, and Don A. Moore, Keeping the Illusion of Control Under Control: Ceilings, Floors, and Imperfect Calibration, Organizational Behavior and Human Decision Processes, 114/2 (March 2011): 104-114. 42. Daniel Kahneman and Dan Lovallo, Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking, Management Science, 39/1 (January 1993): 17-31. 43. Kelly E. See, Elizabeth W. Morrison, Naomi B. Rothman, and Jack B. Soll, The Detrimental Effects of Power on Confidence, Advice Taking, and Accuracy, Organizational Behavior and Human Decision Processes, 116/2 (November 2011): 272-285.
California Management Review, Vol. 55, No. 2, pp. 523. ISSN 0008-1256, eISSN 2162-8564. 2013 by The Regents of the University of California. All rights reserved. Request permission to photocopy or reproduce article content at the University of California Presss Rights and Permissions website at http://www.ucpressjournals.com/reprintinfo.asp. DOI: 10.1525/cmr.2013.55.2.5.
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